This is a blog about interacting systems and how they behave: systems thinking construed broadly. Financial markets and economics; politics; and occasionally physical systems are discussed, with an attempt at focusing on how the rules of the game determine the strategies of participants and the possible outcomes.

Tuesday, 2 September 2008

The Functions of Capital

It occurred to me as I was sweeping up the fallen leaves from my Hebe this afternoon that the marxist critique of capitalism would be stronger if it included the destructive effects of leverage. After all capitalism implies a duty to maximise ROE, and doing that requires leverage. But too much leverage gives you a banking crisis.